Investment for development

G20 Summit: Framework for Strong, Sustainable and Balanced Growth

Remarks by Angel Gurría, OECD Secretary-General to the G20 Leaders

Pittsburgh, 25 September 2009

Thank you Mr. President.

I am honoured to participate in this third edition of the G20, and want to thank President Obama for inviting us to join you and contribute to these important discussions. I come with specific results of the work you asked from us in previous Summits in the area of international investment; labour policies; taxes – where we created the Global Forum on Tax Transparency with 90 members – and export financing.

We are ready to continue our work in these fields and in those others where we are called by this Summit. The OECD has developed a Strategic Response to the crisis that we also put at your service.

In my intervention, however, I want to focus the adoption of the Framework for Strong, Sustainable and Balanced Growth. This is an excellent initiative and a clear contribution of the G20 to the world economy. The OECD is ready to support this endeavour. As was proven by the timely and effective coordinated action among the major economies around the table to face the crisis, much can be achieved when policy options and growth strategies are shared and discussed together.

I would like to call your attention to the structural part of the proposal. You have reached consensus on a macroeconomic strategy and on how to reform and strengthen financial markets. As we consolidate progress in that field, we should be looking for the new sources of growth, but also new sources of job creation and this can only come with the right structural policies. This is a challenging task as we are still struggling to exit from the recession; we are facing fiscal sustainability problems; increasing unemployment and we know the crisis will have permanent effects in our economies, in the way of lower growth and potential output.

However, going for more growth and jobs is possible even in these adverse circumstances, if we get the policy mix right. At the OECD we have done extensive work on the links of structural policies and growth and our evidence shows that there is clear impact on the growth potential of certain measures. According to our analysis, reforming education systems could raise living standards significantly. For example, one additional year of education is expected to raise GDP per capita in the long run by some 4 to 7 per cent. Improving the workings of labour markets, by raising the effective labour supply, has also the potential to raise significantly living standards of our economies. A package of labour market policies promoting participation and labour market adaptability could raise employment rates by several percentage points. Last but certainly not least, for the typical industrialised country aligning product market regulations to best practice could raise (long-run) GDP by as much as 2.5 per cent.

Structural policies are a matter of domestic agendas, but it is also one that benefits from a common international approach. Learning from each other, identifying best practices among peers, as well as taking into account spill-over effects of structural policies in one country or group (of countries) can improve the impact of those policies on growth and job creation. A very first step in this agenda is to agree on international common targets, while leaving countries to decide on specific policy priorities, according to their level of development and specific circumstances. This means identifying the most promising areas to promote higher growth.

I suggest that the common areas could be innovation and green growth, and I want to put on the table some basic principles related to these two areas. Although neither of them is new when addressing the development challenges, together they reinforce themselves and become all the more important due to the challenges we face today. They could become the overarching umbrella to build the structural agenda of the G20 Framework. They could even be developed as an action plan to be adopted by Leaders, besides the agreements on macroeconomic coordination and short-term responses to the crisis.
To put innovation and green growth at the centre of our economic strategies, we also need the appropriate combination of macroeconomic, regulatory and structural policies.

As overarching themes, innovation and green growth are open enough so that each country can adopt certain measures that take into account their specific circumstances and capabilities. Promoting innovation in one country could mean overhauling the higher education system and linking it better to the business world, while in other it may mean improving basic education coverage and performance. Another country may be facing more challenges from their competition framework, or to increase investment in infrastructure. Indeed, the debate is country specific, but there are lessons to be learned together and issues to be discussed to enhance these policy priorities.

Structural policies are also relevant for other purposes. As we move forward we must make sure that current account imbalances are sustainable. We all know such imbalances are in many cases the symptom of domestic imbalances, reflected in large saving-investment gaps. This is where structural policies targeted at dealing with ageing problems and social sustainability can also play a role.
Growth will not be sustainable if it is not associated with reducing inequalities. Structural policies, by empowering people through better education; better access to basic services, including health; better social safety nets: all are key components of a strategy for a more equal growth. This includes the needs of the less developed economies that would also need support from G20 countries to develop a policy agenda that is relevant to their circumstances. Again, this is an area where OECD analysis and advice can help.

Last but not least, structural policies can provide a key contribution for achieving fiscal sustainability. To the extent that they raise output, they contribute vigorously to debt dynamics and impose discipline on public policy, enhancing public sector efficiency. Structural measures also contribute to make fiscal adjustment more credible.

As you all know, however, structural policies require strong political investments. Benefits become visible with a lag while costs often show up immediately. Building consensus on structural policies can be facilitated by making explicit the outcomes in terms of GDP gains and job creation. Often, this can be done by looking at other countries’ experience. This is what the OECD has also been doing by looking at the political economy of reform, or as we call it in Paris, “how to make reforms happen.”

In conclusion, we can offer a key contribution to the Framework for Strong, Sustainable and Balanced Growth by offering our policy experience of more than 50 years, and where the OECD has a clear comparative advantage. We can do it. In fact, we are already doing for every single country around this table except Argentina and Saudi Arabia, and that can be fixed in a jiffy. We hope we could work together on this important agenda.